Market Segmentation and Zipcar Niche Discovery: A Car Sharing Case Study

Abstract

Zipcar is a membership-based car sharing company that experienced quick success as a function of customer-based marketing strategies. Zipcar increased the value of their product by placing the product where it would be valued most. They did this through operating exposure and market segmentation, market targeting at the niche level, and market positioning. Market segmentation provided an organized breakdown of the broader market potential, and market targeting and market positioning allowed the company to identify specific groups of consumers that gave value to an urban lifestyle, the convenience of a vehicle without the added cost or hassle of ownership, and perceptions of environmentally friendly stewardship. It is likely that the continued success of the company will rely on investment in market positioning as their membership base expands. With a broader membership base, a product of the company’s success, there will also be increased competition for similar market segments. Positioning of Zipcar products and services will be integral to the company’s success in light of these new competitive pressures.

Case Study

The tracking of social and cultural phenomena has been a popular way to understand the complex array of human behaviors for hundreds of years. While we live in an age of extraordinary technological growth and increased access to information, our ability to manipulate technology and information is limited to our social and cultural knowledge. An interesting function of free market capitalism is to push the limits of that knowledge. By studying trends in social and cultural behavior, the wants and needs of consumers can be met with increased precision throughout large swaths of a market audience.

Zipcar, a membership-based car sharing company, provides a great example of how market knowledge can lead to impressive revenue gains through the manipulation of small market segments. Growing to over 300,000 members in 2009, Zipcar began like many successful start-ups, with an informed idea. The original premise of the company was the provision of a vehicle’s convenience without the added hassle and cost of vehicle ownership. The idea spread fast with membership bases growing in major US cities in three short years (Kotler & Armstrong, 2011).

Zipcar’s early success is an indicator of their effectiveness at catering to a section of a target market, however their ability to evolve within that market in subsequent years is a testament to their marketing acumen. The traits of the company’s service provision, namely increased efficiency coupled with affordability, existed as a necessary function of urban life. As the company began to focus in on individual targets within their market, though, their revenue stream boomed. Membership grew in American, Canadian, and European cities and college campuses. By the time the company was experiencing membership numbers around 300,000 their marketing strategy was still set on the general traits of urban efficiency, however it was also more focused on a youthful, trendy, and environmentally-sound urban lifestyle. CEO Scott Griffith, in 2009, stated “We’re creating a lifestyle brand that happens to have a lot of cars” (Kotler et al., 2011, p. 256).

Zipcar remains successful. In March 2013 the large automotive rental giant Avis bought Zipcar for nearly $500 million (Eisenstein, 2013). With greater liquidity Zipcar’s marketing strategies will become more varied, however the fundamental approach of targeting small segments of an urban market has shown its utility. It is unlikely that Zipcar will go away from this approach, retaining an important level of value in the minds of individual consumers whose priorities align more with lifestyle identity.

Marketing Concepts

The case study of Zipcar’s success over a short period of time provides a material example of customer-driven marketing strategies. As the name suggests, customer-driven marketing strategies aim to capitalize on trends in the preferences and needs of individual consumers. This is opposed to other marketing strategies that cater to the needs of large, generalized markets. In a sense, Zipcar’s approach can be considered a micro-marketing strategy. By understanding the wants and needs of individual consumers, Zipcar focused its original idea to garner a loyal membership base instead of appealing to a wider variety of consumers. Three marketing concepts afforded the company success: market segmentation, targeting, and positioning.

Market segmentation refers to the general organization of a market into smaller groupings of consumers who have similar needs or priorities. It is a form of focusing in on a specific need or priority to assess the value of a product. One product may do better in one market segment versus another market segment despite the fact that both segments gain a similar utility from the product. The success of the product within each segment is determined by a variety of factors that can’t always be predicted. It is important, then, for marketers to measure success across segments. They must be able to see quantifiable results once a product is applied to a segment. They must see a profit potential, stability within the segment, responses to market stimuli, and above all they must understand the relationship of needs and priorities between and within market segments.

The utility of market segmentation is generally evaluated on a balance between the internal homogeneity of a market segment with the external heterogeneity of the market. One tool that is used to quantify this balance is a richness curve. Novak, Leeuw, and MacEvoy (1992) proposed the use or richness curves to measure the magnitude of variance within markets and their ability to be segmented. This has allowed marketers to garner even greater degrees of precision in reaching a target segment. Richness curves provide more detail in segmenting populations. Zipcar’s initial marketing strategies (similar to those for KDH Bulletproof Vests) mirrored that intention. They were able to segment their market in order to focus more efforts on one segment, instead of spreading their marketing resources broadly. By working within the heterogeneity of the market as a whole, Zipcar was able to identify segments that valued things like status and stewardship with useful characteristics like segment usage rates and segment loyalty.

Through market segmentation Zipcar focused their intentions more efficiently. What did they do within those new parameters, though? They began to target specific consumers within segments. Market targeting is a marketing concept that acts to focus in on a need or a priority within a segment. Segmentation can only tell you so much about a potential consumer base. Targeting allows a marketer to discover individual consumers who consider a product to be the most valuable, and the discovery of those individuals can have implications within the segment. Those individuals can become brand ambassadors and advertisers in their own right by using the product in a way that the rest of the segment values.

Market targeting exists on four different levels: undifferentiated, differentiated, niche-based, and micromarketing (Kotler et al., 2011). Undifferentiated targeting generalizes needs and priorities across a market segment. It asks questions like “What does a market have in common?” Differentiated targeting focuses more, asking questions like “Where do segments differ with each other?” Niche targeting looks at concentrations of certain needs and priorities within a market and a segment. Micromarketing is incredibly specific, targeting individuals for market-based reasons (Kotler et al., 2011).

Zipcar was successful at niche targeting, but only as a step within the process of a customer-based marketing strategy. Broad trends across their market audience allowed them to focus in on groups of consumers who value the convenience of a car despite not having one. Market segmentation allowed them to look at reasons consumers don’t have cars. Niche market targeting allowed Zipcar to identify dense urban populations who could likely afford a vehicle, but who also value an urban lifestyle that celebrates the necessity of sharing, communal spaces, and environmentally-friendly living.

With these market strategies Zipcar was able to garner support with a nearly grass-roots approach. Their performance within these niches, however, could have fallen flat without the marketing concept of market positioning. Market positioning refers to product placement within a market segment that occupies an easily identifiable and inherently valuable space. An important tool used in market positioning is a positioning map which creates a visual image of things like consumer perceptions of a product and the market success of competing products (McCracken, 2013). This allows marketers to understand not just the value consumers place on a category of products, but on specific products across a number of competitors.

Zipcar showed marketing savvy by targeting market segments and niche groups who value urban, environmentally-friendly, and pragmatic lifestyles. Market positioning, however, allowed them to see segments and niches in which they had the greatest competitive advantage, or where their product had the greatest value compared with other similar products. Consider the mobile platforms iOS by Apple and Android by Google. Quarterly these two companies compete for revenue streams and market shares. In order to maintain a high perceived value for their products the two companies use a wide variety of business and marketing strategies, but market positioning remains a primary concern. Between November 2012 and February 2013 Android sales and market share were much higher than the Apple iOS sales, however Apple still garnered a much larger revenue stream (McCracken, 2013). They held a competitive advantage despite a lower market share by increasing the perceived value of the products that carried the iOS mobile platform. By increasing the quality and applicability of their devices and their device applications their revenue stream remained strong. Consumers saw greater value in an Apple product, just as Zipcar membership rose with value in mind.

Firm Analysis

At the point of the case study analyzed in this report the future for Zipcar looked bright. Zipcar was started in 2000 and experienced significant growth over time. It wasn’t until 2003, however, when Scott Griffith took over as CEO when the company’s marketing strategies focused more on niche segments of their broader markets. In April of 2010 Zipcar began to unify that niche market by buying out a major competitor in the UK. In April 2011 the company went public, and by November 2012 Zipcar had 767,000 members and 11,000 cars in North America and Europe (Eisenstein, 2013).

This timeline shows the incredible value of Zipcar’s product. But value to whom? Zipcar’s services likely don’t matter much to a farmer in rural Iowa, but that isn’t the company’s target consumer is it? Indeed, Zipcar has shown the value of its product by putting the product where it will be valued greatest. They have done this through the marketing concepts: segmentation, targeting, and positioning. The greatest indicator of their success, though, was seen in March 2013 when Avis bought the company for nearly $500 million (Eisenstein, 2013).

Most Valuable Concept

Zipcar’s quick success story shows the utility of targeting niche segments of a population, inducing value where a product will be valued. It’s a rather simple approach. Their continued success, then, will hinge on the ability to adapt within these market segments and market positioning will be a central theme in their marketing strategy. Currently the company has over 800,000 members (Eisenstein, 2013). This means that there are 800,000 members of those niche segments, or that the Zipcar product has a more general value across larger segments. This, of course, is an intention that goes in the opposite direction of Zipcar’s initial marketing approaches. As the popularity of the product expands out over these market segments the positioning of Zipcar’s original product will become more difficult. Other companies will see a larger market audience interested in a product that could be offered with slight variations on the type and amount of value perceived in Zipcar’s product. Zipcar will have to maintain a quantifiable understanding of this value, and the company must be willing to explore niche segments who will inherently value their product.

Application to Career Path

These are fairly simple marketing strategies, yet their utility is obvious in the number of examples presented in the text and the references cited in this report. Market segmentation is an important concept that can be applied in nearly every sense of marketing application. It is also necessary to the understanding of more informed approaches like targeting and positioning. Together the three concepts that this report focuses on create a good foundation with which to understand why consumer/customer-based marketing is so effective. For a person just starting out in a career in Marketing the ability to be more nuanced, more precise, and more individual in marketing strategies is only going to increase as technology drives changes in how people receive advertisement. Maintaining this core of marketing strategy will be integral to the application of these new strategies.

References

Eisenstein, P. A. (2013, January 2). Avis buying Zipcar in $500 million all-cash deal. NBC News. Retrieved from http://www.nbcnews.com/business/avis-buying-zipcar-500-million-all-cash-deal-1C7785094

Kotler, P., & Armstrong, G. (2011). Products, services, and brands: Building customer value. In, Principles of Marketing (pp. 220 - 261). Upper Saddle River, NJ: Prentice Hall.

McCracken, H. (2013, April 16). Who's winning, iOS or Android? All the numbers, all in one place. Time Magazine, 181. Retrieved from http://techland.time.com/2013/04/16/ios-vs-android/

Novak, T. P., Leeuw, J. d., & MacEvoy, B. (1992). Richness curves for evaluating market segmentation. Journal of Marketing Research, 29(2), 254-267.